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Posco’s expansion plan hits India hitch

business Updated: Jul 26, 2013 01:19 IST

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Some investors in South Korean steelmaker Posco are starting to sour on a long-delayed $12-billion project for a steel mill in Odisha that was once hailed as a profit driver.

The investment is part of a global expansion spree led by Posco group chairman and chief executive Chung Joon-yang, a nearly decade-long strategy that was intended to capitalise on rapid emerging economy growth and help reduce the company’s reliance on its domestic market.

But a series of acquisitions left Posco with a debt burden that has more than doubled over the past three years, while slowing growth in major markets such as China has hurt steel prices and margins. Last week, the steelmaker said it will bow out of a $5.3 billion steel mill development in Karnataka.

“The steel market is not in good shape, and we share investors’ concerns about the overall market conditions,” a Posco executive said, speaking on condition of anonymity. “The Odisha investment would be a burden to us.”

The official, however, confirmed that Posco was sticking with its Odisha plan, noting that it would be years before the mill starts production, and market conditions may improve by then.

“Question marks are growing over whether Posco’s Indian investment would be valid. Posco does not have enough money to finance the project,” said Choi Moon-sun, an analyst at Korea Investment & Securities.

Posco ’s total debt has more than doubled to 39.6 trillion Korean won on a consolidated basis at the end of March 2013, from 18.2 trillion won at the start of 2010.

Fitch Ratings and Moody’s Investors Service cut their credit ratings on Posco in 2012 and left the outlook “negative”.